Quality Control on the Free Market: Horse meat and Compounding Pharmacies

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    I am doing a presentation in pharmacy school on the recent fungal meningitis outbreak from last fall. (In case your state wasn’t effected…. a drug manufacturer in MA sold thousands of lots of tainted vials for spinal column injection that infected hundreds and killed over 50). Now many states are looking to increase oversight on drug compounding (as opposed to “manufacturing” on a mass level, compounders create products for specific prescriptions) so as to prevent this type of disaster again.

    I understand the case for free market quality control, but I need help articulating why government regulation actually incentivizes low quality even among individuals whose products are not publicly owned (such as meat distributors selling horse meat instead of beef or drug compounders selling tainted drugs). I understand there is a false sense of security, but is that it? Why isn’t there quality assurance provided by the free market between a hospital looking to buy lots of compounded medicine and the compounder if there is still uncertainty in the regulators’ ability to stop poor quality?


    I’m no expert on this, but here’s my best guess.

    I would assume that the big-wigs who call the shots at the hospitals are huge fans of big-govt’ and have absolute trust in the regulators’ ability to stop poor quality. Also, the very existence of the regulator gives them plausible deniability.

    Take the purchase of faulty consumer goods, for instance. In decades past, if you bought a product that didn’t work, you returned it to your point of sale and demanded a refund from the merchant. It was his responsibility to ensure the products he sold were of high quality and functioned as promised. If he fails to live up to this, his reputation is tarnished. Today for many goods, this no longer applies. You are directed NOT to return defective electronics to the place of purchase, but rather to file a claim through the manufacturer. The retailer himself passes the buck.

    On a similar level, when the government advertises “we are here to make sure your food is safe,” unsafe food automatically becomes, at least in part, a failure of government. One they will undoubtedly demand more of your money to fix. So long as retailers can say “hey, I only sold food that was government approved” they can shift the blame to the government. This gives them less incentive to spend valuable resources double-checking product quality themselves.


    I agree with all that, but the question I’m asking regarding specifically the New England Compounding Pharmacy was that the government was NOT insuring the quality of their products. Compounding pharmacies are not under the FDA like manufacturers. So the argument is being made that more oversight would’ve prevented this. So why hasn’t the market produced good quality control among compounding pharmacies? There are several well-known sterility standards such as USP-797 and accreditation/certification available… why would so many hospitals neglect those quality insurance signals and go for this pharmacy that was dirty? When dealing with an entity as big as a hospital and with few options of hospitals, how do consumers hold hospitals accountable for ordering supplies from poor quality compounding pharmacies or even know who their suppliers are?


    The argument will always be that “oversight could have prevented X” but we need to emphasize what I highlighted; could is not the same as automatically would and with no tradeoff/downside.

    We also need to emphasize “what kind of oversight? Underwriters Laboratory-style oversight? or government oversight?” noting that the later has its own incentives, and creates its own problems, as Robert Higgs goes into at length here; this kind of oversight kills more people than it saves.

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